Lesson 3: Understanding the currency pairs

April 1, 2022

Learn Forex Currency Pairs

The US Dollar is the most frequently traded currency in the world. As a result, most currencies are quoted against it. However, different types of currency pairs are used when referring to Forex trading, each of which is split into groups depending on the amount of trading activity and liquidity. These are known as majors, minors (or crosses), and exotic pairs.

Major currency pairs

The most traded currency pairs in the world are called the majors. They are generally the most liquid and attractive to all types of Forex traders. The EURUSD is the most traded pair, representing nearly 30% of all daily Forex trades on the entire Forex market.

Currencies not classed as major currencies but are normally traded against a major currency are called minor currencies and crosses.

Minor currency pairs and crosses

Currency pairs that do not contain the US Dollar are known as ‘crosses’. A currency pair involving a major non-US Dollar currency would also be known as a ‘minor currency pair’.

The most common crosses are pairs derived from the three major non-US Dollar currencies – Euro, Great British Pound, and Japanese Yen. For example, pairs that involve the euro are called ‘euro crosses’. Below is a list of Euro, Pound, Yen, and other crosses.

EURO CROSSES

GBP CROSSES

YEN CROSSES

OTHER CROSSES

Exotic currency pairs

Trading exotic pairs offer exposure to a wide range of developing and emerging market economies across Asia, the Middle East, and Africa. In general, exotic pairs are not traded as often as majors or crosses, which means they are not very liquid markets and lack consistent market activity.

There are often pros and cons associated with trading exotic currency pairs. Because they are not so widely traded, they can often be subject to higher trading fees; however, when the market moves, they can be subject to wild price fluctuations (suitable for the more experienced trader).

Below is a list of some of the main currency pairs referred to when talking about exotic pairs.

Nicknames

In Forex, many currency pairs (especially the majors) have particular nicknames which are commonly used in the market. Many even have an exciting story about why they were nicknamed that in the first place. For example, the FX pair GBPUSD is called ‘cable’.

This dates back to the 19th century when a communications cable ran across the Atlantic Ocean floor to get the exchange rate between the US Dollar and the British Pound.

In some cases, the currency by itself is known by a different name. For example, the US Dollar is often referred to as the ‘greenback’, while you may hear the British Pound referred to as ‘sterling’.

Below is a list of the most popular currency pair nicknames.

CURRENCY PAIR NICKNAME

Currency codes

Currencies are often abbreviated to a three-letter currency code. The first two letters symbolize the country’s name, while the third is the country’s currency.

Let’s look at a few examples.

GBP – ‘GB’ stands for Great Britain, while the ‘P’ stands for Pound

USD – ‘US’ stands for the United States, the ‘D’ stands for Dollar

JPY – ‘JP’ stands for Japan, the ‘Y’ stands for Yen

In trading, you will hear a lot about ‘pips’ and ‘spreads’. Learn about pips in Forex and how different factors can influence spreads.

FAQ

Q: What are major currency pairs?

A: Major currency pairs are the most traded pairs in the forex market, involving the US dollar and other major currencies like the Euro, Yen, and Pound.

Q: How do I read a currency pair?

A: A currency pair is quoted with a bid and ask price. The first currency is the base, and the second is the quote. The value indicates how much of the quote currency is needed to purchase one unit of the base currency.

Q: What factors influence currency pair movements?

A: Factors include economic data, geopolitical events, interest rates, and market sentiment.

Q: What are exotic currency pairs?

A: Exotic pairs consist of one major currency and one from an emerging or smaller economy, like USD/TRY or USD/ZAR.

Q: How can I start trading currency pairs?

A: Begin by opening a demo account with VT Markets to practice trading and develop your strategy.

Ready to master currency pairs? Open a demo account with VT Markets today and practice trading with virtual funds. Join VT Markets and take the first step towards becoming a skilled forex trader!